Mr. Chairman and members of the Subcommittee, I am Maria
Freire, Director of the Office of Technology Transfer. I
am pleased to appear before you today on behalf of the National
Institutes of Health to address how intellectual property
considerations affect basic science and the future development
of products for public benefit.

Given the complexity of these issues, it is important to
understand how the transfer of federally funded technology
from the not-for-profit sector to the for-profit sector
is accomplished. To do so, I will briefly discuss the successful
process established by Congress in the 1980's that governs
the commercialization of federally funded biomedical research.

The Bayh-Dole Act, Stevenson-Wydler Technology Innovation
Act of 1980, and amendments, including the Federal Technology
Transfer Act of 1986 (FTTA)

Over twenty years ago, Congress enacted a series of laws
that encourage government-owned and government-funded research
laboratories to pursue the commercialization of the results
of their research. These laws are the Bayh-Dole Act of 1980
and the Stevenson-Wydler Innovation Act of 1980, including
one of its amendments, the Federal Technology Transfer Act
of 1986 (FTTA). The Bayh-Dole Act addresses intellectual
property rights in federally funded grants, contracts and
cooperative agreements, while Stevenson-Wydler and the FTTA
address intellectual property of government laboratories.
The goal of these laws is to promote economic development,
enhance U.S. competitiveness and benefit the public by encouraging
the commercialization of technologies developed with federal
funding. Generally, these laws allow government laboratories
and the recipients of government funding to elect to retain
title to their inventions. They also impose certain obligations:
promoting utilization, encouraging commercialization and
ensuring public availability of these technologies.

I am pleased to say that the goals set by Congress under
these laws have been achieved and that, in the biomedical
arena, the impact of these statutes has been critical. In
fact, many experts believe that the biotechnology industry
was spawned from the close interaction between academia
and industry. It is widely recognized that the Bayh-Dole
Act and the FTTA continue to contribute to the global leadership
of the U.S. biomedical enterprise, and governments around
the world are emulating these laws in the hopes of promoting
economic development in their own nations.

New products developed under this system benefit patients
daily and provide hundreds of scientists with the tools
required for further discovery in support of our public
health mission. For example, inventions arising from the
NIH intramural program alone have contributed to over 150
products on the market, including diagnostic kits, vaccines,
therapeutic drugs and dozens of antibodies, cell lines and
other research tools. Similarly, the transfer of technology
arising from the NIH extramural program has contributed
significantly to new products and fostered economic development.

To accomplish the transfer of technology, universities
have relied on authorities granted to them by the Bayh-Dole
Act. The Act permits the grantee to retain title to intellectual
property developed with federal funds and to license its
rights to for-profit entities. It should be noted that,
as provided by the Act, the Government does not have any
direct control over patenting and licensing activities related
to discoveries resulting from NIH funded research.

Patents provide the right to exclude others from making,
using, selling, offering for sale, or importing a new invention
for the life of the patent. This is society’s reward to
the owner for teaching others how to make and use the invention
claimed in the patent. In the biomedical field, patents
are extremely valuable to companies, particularly small
companies. They provide a means of securing investment income
by establishing the company’s preeminence in a particular
area of technology. Parties interested in practicing an
invention in which they have no ownership may obtain rights
to the invention by entering into a licensing agreement
with the patent owner. A license is a contract with binding
commitments on each party, usually involving compensation.
A license does not grant title to the invention. Licenses
can be exclusive, when only one licensee is permitted to
benefit from the use of the technology, or non-exclusive,
when more than one licensee is permitted to benefit from
such rights.

As this Subcommittee well knows, new drugs and vaccines
are costly to develop, and companies are unlikely to invest
in further research and development without some promise
of future product exclusivity. When Congress gave federal
grantees the ability to patent and exclusively license government-funded
inventions, the private sector turned its attention toward
publicly supported research as a new source of potential
products. The value to the public resides in the generation
of new drugs, vaccines, and medical devices. These activities
have also stimulated economic development and the creation
of new jobs in the United States.

Whenever federal funds are used to support a new discovery
by contractors and grantees, the government has a non-exclusive,
royalty-free right to use the patented technology by or
on behalf of the government. This would allow the government
laboratories and contractors the right to use the patented
technology for further research. In addition, in dealing
with this invention the federal grantee or contractor must
ensure that the goals of the Bayh-Dole Act--utilization,
commercialization, and public availability--are implemented.

When research is funded entirely by the private sector,
the government has no statutory license, and it is strictly
a private matter whether, and under what terms, new intellectual
property is made available to others for commercial or research
purposes.

Mr. Chairman, as we have discussed with this Subcommittee
before, it is not merely the existence of a patent that
raises concern for the biomedical research community. The
concern mostly arises when the patent holder chooses to
exercise its rights through licensing or other contractual
agreements in a manner inconsistent with the advancement
of basic research. For example, many new inventions are
not final products. The discovery may be a research material
or a new method or procedure, primarily useful as the means
to conduct further research. Such discoveries are commonly
known as research tools. There is little doubt that many
research tools may be patentable and that they are of economic
value to the holder of these rights. There is also little
doubt that the value to society is greatest when such research
tools are made widely available to scientists.

For example, a license that provides complete exclusivity
to a technology that is also a research tool may result
in some product development in the short-term, but it will
close off opportunities to advance science and develop other
products in the long-term. The only way to maximize the
benefit to the public is to ensure that both research use
and the potential for commercial development are preserved.

The professionals working in the specialized field of biomedical
licensing strive to promote a balance between commercial
interests and the public interest. In those instances where
a research tool can also become a therapeutic product, licenses
can be, and are, carefully crafted by scope, application
and field to allow use by the research community without
destroying a company’s commercial incentive to develop the
product.

Careful licensing that preserves this balance, however,
has not always been the case. The NIH has been concerned
for some time about the potential adverse effects of restrictive
licensing practices on access to research tools. In response
to concerns from the scientific community, NIH has published
guidelines on the sharing of biomedical research resources
entitled "Principles and Guidelines for Recipients
of NIH Research Grants and Contracts." This document
helps ensure open sharing of research tools to maintain
the robust research enterprise in this country.

Stem Cell Research

How do issues regarding intellectual property considerations
relate to research on stem cells? The issuance of patents
by the U.S. Patent and Trademark Office may not necessarily
have an adverse effect on continuing research and often
promotes the development of new therapeutics, diagnostics
and research tools, including cells. If patent owners devise
a licensing and sharing strategy that will allow basic research
to continue unencumbered while preserving appropriate commercial
value, they will help ensure that such research tools are
broadly available to the research community. The terms and
conditions on the use and the transfer of material, such
as these cells, would be set forth in an agreement commonly
called a Material Transfer Agreement, or MTA.

MTAs are vehicles used to transfer proprietary materials
between and among the for-profit and not-for-profit sectors.
Most MTAs are simple, 1- to 2-page agreements. MTAs can,
however, impose obligations or restrictions that can stifle
the broad dissemination of new discoveries, slow the technology
transfer process and limit future avenues of research and
product development. Examples of such obligations include
so-called "reach-through" provisions that may:
1) give the provider of a material ownership of new inventions
developed by the recipient; 2) require royalty payments
by the recipient to the provider on inventions discovered
by the recipient that are not covered by the provider’s
patent; or, 3) require the recipient to give the provider
an option to exclusive rights to any new intellectual property
arising from recipient’s use of the material.

NIH’s experience has shown, however, that conditions imposed
by patent owners – whether in a license or an MTA – can
be crafted to ensure both research uses and commercial development.
For example, the NIH strategy is to negotiate non-exclusive
licenses for its intramural technologies whenever possible.
This allows more than one company to develop products using
a particular technology, products that may ultimately compete
with each other in the marketplace. We recognize that companies
need an exclusive market to offset the risk, time, and expense
of developing biomedical diagnostic or therapeutic products.
However, companies do not necessarily need to achieve that
position solely by exclusively licensing a government technology
used to develop the product. Instead, companies are frequently
able to add their own proprietary technologies to the invention
licensed from the government to ultimately achieve some
level of uniqueness and exclusivity for the final product.

If non-exclusive licensing does not provide enough incentive
for the company to develop a product, and it often does
not for a potential therapeutic application, NIH will award
exclusivity for specific indications or fields of use, based
on the license applicant’s commercial development plans
at the time of the application. NIH also provides for exclusive
licensees to grant sublicenses to broaden the development
possibilities when necessary for the public health. Finally,
NIH insists on the continuing unencumbered availability
of the licensed technology to the not-for-profit scientific
community for further research.

Experience over the last 20 years has shown that to maximize
public health benefit, the balance between exclusivity and
access must be carefully maintained, and research uses of
new technologies must be preserved. These concepts form
the basis for the licensing policies of the NIH, as well
as for the proposed guidelines for our grantees mentioned
above.

Over the past few years, NIH has, however, faced situations
in which the patent holder was willing to allow basic research
to continue only under terms that were inconsistent with
our research tools principles and guidelines. To resolve
such a situation, NIH negotiated acceptable terms with the
patent holder so that scientists could continue to use the
tools for basic research while protecting the company’s
commercial rights. In fact, as part of these agreements,
the terms and conditions were extended to NIH grantees,
should they choose to take advantage of these more favorable
terms.

The experience since the inception of the guidelines has
been that, while the process between not-for-profit entities
has been streamlined, there is still work to be done when
transfer of tools happens between the for-profit and not-for-profit
sectors. We are hopeful that continued dialogue between
these two constituencies will eventually result in an understanding
that would permit the research enterprise to continue to
flourish without undue impediments.

Finally, it is important to remind the Subcommittee that
the NIH has limited authority over the patenting and licensing
activities of our contractors and grantees. Therefore, with
regard to the stem cell patents and patent applications,
it would be appropriate to address questions to the owners
and licensees of this technology as to what conditions they
may apply to those who desire to use the intellectual property.

Summary

Congress has enacted legislation for recipients of federal
funding that encourages the utilization, commercialization
and public availability of federally funded inventions.
Grantees and contractors have exercised the broad discretion
awarded them by the law and sought to achieve these goals
through the patenting and licensing of new inventions that
arise through the use of federal funds. The government has
only limited authorities over these activities. If the research
is entirely funded by the private sector, the government
has no statutory license and is not involved in patenting
or licensing decisions. Exclusive licensing, without regard
to research uses, can impede rather than enhance utilization
and public availability of certain types of inventions,
such as research tools. Strategic licensing can alleviate
potential problems. Indeed, many grantees provide for the
continuing availability of exclusively licensed subject
matter to researchers in order to ensure progress of biomedical
research. The NIH has urged, and will continue to urge,
patent owners and exclusive licensees to ensure continuing
availability of a technology under terms that do not limit
basic research or encumber future products. The key to the
use of a technology is in the manner in which holders of
existing patents exercise their rights through licensing
and other contractual agreements.

Mr. Chairman, thank you for the opportunity to provide
this broad background on the effects of patents and licenses
on the advancement of science and medicine.